Fed pushing back

European stock markets are softer in early trade on Tuesday following a similar session in much of Asia as investors turn more cautious ahead of Thursday’s US inflation data.

The commentary from Fed officials at the start of the week was more hawkish than what investors wanted to hear following a knockout jobs report. Considering the rhetoric in the weeks leading up to Friday, it shouldn’t have come as a great surprise that policymakers are sticking to the “higher for longer” narrative.

There has been a determination to not allow financial conditions to loosen on the expectation of lower rates down the road as it undermines tightening efforts now. While the central bank’s assessment of future rates may be more hawkish than the markets, it’s also possible that they’re being intentionally overly hawkish now in an attempt to stop investors from getting carried away.

The jobs report may not have been enough to warrant a shift in the language, but that doesn’t mean we aren’t close and any change could be quite stark. The inflation report on Thursday could further justify such a move although investors will be very wary that a bad one could ensure policymakers dig their heels in for a while longer yet.

Tentatively higher

Bitcoin is marginally higher after breaking back above $17,000 yesterday, buoyed by an improvement in risk appetite. That remains fragile though and a nasty surprise this Thursday from the US inflation report could send risk assets into reverse. The broader crypto environment remains the dominant driver though and it’s gone a little quiet on that front which will be welcome.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

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